INVESTING IN EMERGING MARKET: CRITICAL INFRASTRUCTURE
Since the last financial recession of 2008 and the unpredictability of the global market, more and more investors look for secure investment opportunities. In this search, infrastructure development appears to be the booming and attractive area, especially in developing countries.
Countries such as Singapore, Ethiopia and Rwanda have been in the recent past among the leading example in infrastructure development. Of course, these countries have managed to work out their investment policies, government initiatives and have managed to define their development agenda beyond the construction of infrastructures. Using these examples, it is evident that for many developing countries investing in Infrastructure is critical for their economic growth and social development.
On this same line, using infrastructure development as critical component for social and economic development, many countries in Africa signed major deals with China and other countries to build bridges, roads, hospitals, schools, power stations, hydroelectric dams etc. Beyond the public-public partnership, there is also a growing interest of public-private, private-private partnerships in the development of infrastructures.
With this assessment and knowing how infrastructures are critical to the development of nations, many investors especially in the developed countries wonder how best to secure deals and approach investments in developing countries and continent such as Africa. On the other hand, many African states are open to attracting investors but seem to be unsuccessful in doing so. Hence, this article presents an unconventional view of critical infrastructures needed in Africa as prerequisite for project finance and suggests few terms of engagement that investors should be aware of when dealing within emerging market (Africa’s market).
Establish human infrastructure
The very first type of infrastructure to be established is human infrastructure. This concept of human infrastructure implies building trust and establishing credible rapport between individuals in the project. With the development of technology many investors tend to neglect the human rapport and dimension when conducting business. This ancient way of negotiation and securing deals still valid today and even more relevant in developing countries. The same way pillars are established to sustain buildings, it is equally important to establish human infrastructure in project finance. In fact, before understanding the financial contours and the ramification of projects, it is critical to identify the nature of people in the projects. This is what human infrastructure is all about.
Policy and politics as structural and systemic infrastructure
In addition to human infrastructure, policy and politics are structural and systemic infrastructure that can attract or push away investors. Open and clear policies are critical in project finance. Many countries in emerging market are working hard to attract investors and build their competitiveness at the regional or global level. Beyond being open field with huge potential in investment, it is critical for these countries to focus on designing friendly, clear and strong policies. Of course, policies cannot be sustained without mentioning the nature of politics. The era of attracting investors based on strong personality of the leader has long passed. Systemic infrastructure in emerging market will require that country X guarantee to potential investors that their investments will be protected even beyond the mandate of the authority A.
Knowledge of investment culture
Knowledge of investment culture is another element that compliments human infrastructure, as well as the issue of politics and policies in project finance in emerging market. For instance, many developing countries promote flexibility in their agreements and investment procedures. This is often due to the unpredictability of their social and political spaces. Hence, investors willing to do business in such countries should be aware of these things and align themselves consequently. In addition to flexibility, some countries promote a combination of banking transactions and the use of cash in the implementation of projects. In such context, stakeholders (mainly foreign investors and brokers) would have to make sure that they understand the business culture of the country and adapt to this unpredictable ramification of conducting business. Which might be very different from the one in their home countries.
In conclusion, while there is a growing need of investment in developing countries and emerging market, especially in the era of infrastructure development, I believe successful investment in the 21st century will require the establishment of human infrastructure, understanding the investment culture, establish friendly policies and guarantee a safe political space for investors.
written by Yvan Yenda